Question 1

CDOs are divided in tranches

Accepted Answer

A)  that provide investors with securities with varying degrees of credit risk. 
B)  and each tranch is given a different level of seniority in terms of its claims on the underlying pool. 
C)  and none of the tranches is risky. 
D)  and equity tranch is very low risk. 
E)  that provide investors with securities with varying degrees of credit risk, and each tranch is given a different level of seniority in terms of its claims on the underlying pool. 
A)  that provide investors with securities with varying degrees of credit risk. 
B)  and each tranch is given a different level of seniority in terms of its claims on the underlying pool. 
C)  and none of the tranches is risky. 
D)  and equity tranch is very low risk. 
E)  that provide investors with securities with varying degrees of credit risk, and each tranch is given a different level of seniority in terms of its claims on the underlying pool.

Question 2

A convertible bond has a par value of $1,000 and a current market value of $1,150. The current price of the issuing firm's stock is $65, and the conversion ratio is 15 shares. The bond's conversion premium is

Accepted Answer

A)  $40. 
B)  $150. 
C)  $175. 
D)  $200. 
A)  $40. 
B)  $150. 
C)  $175. 
D)  $200.

Question 3

A 9% coupon bond with an ask price of 100:00 pays interest every 182 days. If the bond paid interest 112 days ago, the invoice price of the bond would be

Accepted Answer

A)  $1,027.69. 
B)  $1,027.35. 
C)  $1,026.77. 
D)  $1,027.98. 
E)  $1,028.15. 
A)  $1,027.69. 
B)  $1,027.35. 
C)  $1,026.77. 
D)  $1,027.98. 
E)  $1,028.15.

Question 4

A convertible bond has a par value of $1,000 and a current market price of $975. The current price of the issuing firm's stock is $42, and the conversion ratio is 22 shares. The bond's market conversion value is

Accepted Answer

A)  $729. 
B)  $924. 
C)  $870. 
D)  $1,000. 
A)  $729. 
B)  $924. 
C)  $870. 
D)  $1,000.

Question 5

A credit default swap is

Accepted Answer

A)  a fancy term for a low-risk bond. 
B)  an insurance policy on the default risk of a federal government bond or loan. 
C)  an insurance policy on the default risk of a corporate bond or loan. 
D)  an insurance policy on the default risk of federal government and corporate bonds and loans. 
E)  None of the options are correct. 
A)  a fancy term for a low-risk bond. 
B)  an insurance policy on the default risk of a federal government bond or loan. 
C)  an insurance policy on the default risk of a corporate bond or loan. 
D)  an insurance policy on the default risk of federal government and corporate bonds and loans. 
E)  None of the options are correct.

Question 6

Floating-rate bonds are designed to ___________, while convertible bonds are designed to __________.

Accepted Answer

A)  minimize the holders' interest rate risk; give the investor the ability to share in the price appreciation of the company's stock 
B)  maximize the holders' interest rate risk; give the investor the ability to share in the price appreciation of the company's stock 
C)  minimize the holders' interest rate risk; give the investor the ability to benefit from interest rate changes 
D)  maximize the holders' interest rate risk; give investor the ability to share in the profits of the issuing company 
E)  None of the options are correct. 
A)  minimize the holders' interest rate risk; give the investor the ability to share in the price appreciation of the company's stock 
B)  maximize the holders' interest rate risk; give the investor the ability to share in the price appreciation of the company's stock 
C)  minimize the holders' interest rate risk; give the investor the ability to benefit from interest rate changes 
D)  maximize the holders' interest rate risk; give investor the ability to share in the profits of the issuing company 
E)  None of the options are correct.

Question 7

A convertible bond has a par value of $1,000 and a current market value of $850. The current price of the issuing firm's stock is $27, and the conversion ratio is 30 shares. The bond's conversion premium is

Accepted Answer

A)  $40. 
B)  $150. 
C)  $190. 
D)  $200. 
E)  None of the options are correct. 
A)  $40. 
B)  $150. 
C)  $190. 
D)  $200. 
E)  None of the options are correct.

Question 8

If a 6.75% coupon bond is trading for $1,016.00, it has a current yield of

Accepted Answer

A)  7.38%. 
B)  6.64%. 
C)  7.25%. 
D)  8.53%. 
E)  7.18%. 
A)  7.38%. 
B)  6.64%. 
C)  7.25%. 
D)  8.53%. 
E)  7.18%.

Question 9

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 9.3%. The intrinsic value of the bond today will be ________ if the coupon rate is 9.5%.

Accepted Answer

A)  $922.77 
B)  $1,010.12 
C)  $1,075.80 
D)  $1,077.22 
E)  None of the options are correct. 
A)  $922.77 
B)  $1,010.12 
C)  $1,075.80 
D)  $1,077.22 
E)  None of the options are correct.

Question 10

A zero-coupon bond is one that

Accepted Answer

A)  effectively has a zero-percent coupon rate. 
B)  pays interest to the investor based on the general level of interest rates rather than at a specified coupon rate. 
C)  pays interest to the investor without requiring the actual coupon to be mailed to the corporation. 
D)  is issued by state governments because they don't have to pay interest. 
E)  is analyzed primarily by focusing ("zeroing in") on the coupon rate. 
A)  effectively has a zero-percent coupon rate. 
B)  pays interest to the investor based on the general level of interest rates rather than at a specified coupon rate. 
C)  pays interest to the investor without requiring the actual coupon to be mailed to the corporation. 
D)  is issued by state governments because they don't have to pay interest. 
E)  is analyzed primarily by focusing ("zeroing in") on the coupon rate.

Question 11

A 10% coupon bond with annual payments and 10 years to maturity is callable in three years at a call price of $1,100. If the bond is selling today for $975, the yield to call is

Accepted Answer

A)  10.26%. 
B)  10.00%. 
C)  9.25%. 
D)  13.98%. 
E)  None of the options are correct. 
A)  10.26%. 
B)  10.00%. 
C)  9.25%. 
D)  13.98%. 
E)  None of the options are correct.

Question 12

Which of the following is not a type of international bond?

Accepted Answer

A)  Samurai bonds 
B)  Yankee bonds 
C)  Bulldog bonds 
D)  Elton bonds 
E)  All of the options are international bonds. 
A)  Samurai bonds 
B)  Yankee bonds 
C)  Bulldog bonds 
D)  Elton bonds 
E)  All of the options are international bonds.

Question 13

If a 6% coupon bond is trading for $950.00, it has a current yield of

Accepted Answer

A)  6.5%. 
B)  6.3%. 
C)  6.1%. 
D)  6.0%. 
E)  6.6%. 
A)  6.5%. 
B)  6.3%. 
C)  6.1%. 
D)  6.0%. 
E)  6.6%.

Question 14

A coupon bond that pays interest of $90 annually has a par value of $1,000, matures in nine years, and is selling today at a $66 discount from par value. The yield to maturity on this bond is

Accepted Answer

A)  9.00%. 
B)  10.15%. 
C)  11.25%. 
D)  12.32%. 
E)  None of the options are correct. 
A)  9.00%. 
B)  10.15%. 
C)  11.25%. 
D)  12.32%. 
E)  None of the options are correct.

Question 15

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000. If the bond matures in eight years, the bond should sell for a price of _______ today.

Accepted Answer

A)  $422.41 
B)  $494.47 
C)  $513.16 
D)  $483.49 
E)  None of the options are correct. 
A)  $422.41 
B)  $494.47 
C)  $513.16 
D)  $483.49 
E)  None of the options are correct.

Question 16

Which one of the following statements about convertibles is true?

Accepted Answer

A)  The longer the call protection on a convertible, the less the security is worth. 
B)  The more volatile the underlying stock, the greater the value of the conversion feature. 
C)  The smaller the spread between the dividend yield on the stock and the yield-to-maturity on the bond, the more the convertible is worth. 
D)  The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlying stock. 
E)  Convertibles are not callable. 
A)  The longer the call protection on a convertible, the less the security is worth. 
B)  The more volatile the underlying stock, the greater the value of the conversion feature. 
C)  The smaller the spread between the dividend yield on the stock and the yield-to-maturity on the bond, the more the convertible is worth. 
D)  The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlying stock. 
E)  Convertibles are not callable.

Question 17

A bond will sell at a discount when

Accepted Answer

A)  the coupon rate is greater than the current yield, and the current yield is greater than yield to maturity. 
B)  the coupon rate is greater than yield to maturity. 
C)  the coupon rate is less than the current yield, and the current yield is greater than the yield to maturity. 
D)  the coupon rate is less than the current yield, and the current yield is less than yield to maturity. 
E)  None of the options are true. 
A)  the coupon rate is greater than the current yield, and the current yield is greater than yield to maturity. 
B)  the coupon rate is greater than yield to maturity. 
C)  the coupon rate is less than the current yield, and the current yield is greater than the yield to maturity. 
D)  the coupon rate is less than the current yield, and the current yield is less than yield to maturity. 
E)  None of the options are true.

Question 18

A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087 with an effective annual yield of

Accepted Answer

A)  12.40%. 
B)  12.55%. 
C)  12.62%. 
D)  12.68%. 
E)  None of the options are correct. 
A)  12.40%. 
B)  12.55%. 
C)  12.62%. 
D)  12.68%. 
E)  None of the options are correct.

Question 19

A convertible bond has a par value of $1,000 and a current market value of $950. The current price of the issuing firm's stock is $22, and the conversion ratio is 40 shares. The bond's conversion premium is

Accepted Answer

A)  $40. 
B)  $70. 
C)  $190. 
D)  $200. 
A)  $40. 
B)  $70. 
C)  $190. 
D)  $200.

Question 20

A coupon bond that pays interest annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be ______ if the coupon rate is 7%.

Accepted Answer

A)  $712.99 
B)  $620.92 
C)  $1,123.01 
D)  $886.28 
E)  $1,000.00 
A)  $712.99 
B)  $620.92 
C)  $1,123.01 
D)  $886.28 
E)  $1,000.00

Exam 14: Bond Prices and Yields

CDOs are divided in tranches

A convertible bond has a par value of $1,000 and a current market value of $1,150. The current price of the issuing firm's stock is $65, and the conversion ratio is 15 shares. The bond's conversion premium is

A 9% coupon bond with an ask price of 100:00 pays interest every 182 days. If the bond paid interest 112 days ago, the invoice price of the bond would be

A convertible bond has a par value of $1,000 and a current market price of $975. The current price of the issuing firm's stock is $42, and the conversion ratio is 22 shares. The bond's market conversion value is

A credit default swap is

Floating-rate bonds are designed to ___________, while convertible bonds are designed to __________.

A convertible bond has a par value of $1,000 and a current market value of $850. The current price of the issuing firm's stock is $27, and the conversion ratio is 30 shares. The bond's conversion premium is

If a 6.75% coupon bond is trading for $1,016.00, it has a current yield of

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 9.3%. The intrinsic value of the bond today will be ________ if the coupon rate is 9.5%.

A zero-coupon bond is one that

A 10% coupon bond with annual payments and 10 years to maturity is callable in three years at a call price of $1,100. If the bond is selling today for $975, the yield to call is

Which of the following is not a type of international bond?

If a 6% coupon bond is trading for $950.00, it has a current yield of

A coupon bond that pays interest of $90 annually has a par value of $1,000, matures in nine years, and is selling today at a $66 discount from par value. The yield to maturity on this bond is

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000. If the bond matures in eight years, the bond should sell for a price of _______ today.

Which one of the following statements about convertibles is true?

A bond will sell at a discount when

A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087 with an effective annual yield of

A convertible bond has a par value of $1,000 and a current market value of $950. The current price of the issuing firm's stock is $22, and the conversion ratio is 40 shares. The bond's conversion premium is

A coupon bond that pays interest annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be ______ if the coupon rate is 7%.

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Floating-rate bonds are designed to _, while convertible bonds are designed to .